Mortgage overpayments wasted while rates are low

28 April 2010 / by Rachael Stiles

Brits have been wasting the opportunity to overpay on their tracker mortgages while interest rates have been at a record low for more than a year, says financial advice website unbiased.co.uk.

While some Brits have been making the most of the fall in interest rates, others have not, according to Unbiased.co.uk's research.

A third of tracker mortgage customers have been putting the savings to good use by paying off other debts, but a quarter of borrowers are frittering away the savings on daily expenses.

Unbiased.co.uk has calculated that 63 per cent of borrowers on a tracker mortgage are not taking advantage of the low interest rates to make overpayments, to repay their mortgage sooner and save on interest payments.

This marks an increase from 53 per cent of borrowers not making overpayments this time last year, and only 11 per cent are currently making additional payments on their mortgage balance.

A financially savvy 13 per cent of borrowers have deliberately left their tracker mortgage payments at the same level they were before interest rates plummeted from highs of 5.25 per cent two years ago to 0.5 per cent in March last year.

But in May 2009, 20 per cent of borrowers were taking advantage of the low rates to overpay on their mortgage.

Of those who are not making the most of the low rates, 13 per cent are putting the extra money aside for a rainy day, despite low returns on savings accounts, and four per cent are spending it on an extra treat, such as a holiday.

Commenting, Karen Barrett, chief executive of unbiased.co.uk, said: "It is worrying to see than instead of taking advantage of the historic low base rate, our tracked research shows there is an increased trend of people failing to overpay on their monthly mortgage payments."

But, she added, "We are encouraged by the increasing numbers who are using their repayment savings to erode their more costly credit card and personal loan debts. However, those who are instead putting the extra into a savings account are missing out, as interest rates on savings also remain at a record low."